It’s by far one of the most important business books I’ve ever read. With that said, ladies and gentlemen, we have the privilege of having the author, Chris Voss, with us here today. 

Chris, welcome to our show.

Chris Voss  1:23  

Thanks for having me on, man. It’s a pleasure to be on here. 

Stig Brodersen  1:26  

Chris, your background at first glance, it looks like it’s as far away from business as it can get. You have experience as a former FBI hostage negotiator, but as our listeners sure know, and I’m sure they will agree with me that it can’t be more business-like than what you’re actually doing. 

Perhaps the best way of explaining that is to go back to the very first hostage assignment you had back on September 30, 1993. Could you tell us what happened?

Chris Voss  1:54  

I’m working in the FBI in New York. I was a hostage negotiator with the FBI. I was a member of the joint terrorist task force. At 8:30 in the morning, a bank robbery goes up in Brooklyn, New York. A buddy of mine walks up to my desk and says, “There’s a bank robbery with hostages in Brooklyn. Let’s go.” 

Charlie and I jumped into a car. We got out there. We found ourselves on top of the bank without realizing it. I mean, we were in the inner perimeter, which is normally where you’re not supposed to start your day. 

We then bailed out of that Crown Vic, big four door American made car, low-crawled to the nearest bank across the street, which is where the command post was and we went inside. Then we got ready to negotiate. 

It turned out there were two bank robbers with three hostages. We didn’t know how many they were at the time. We thought maybe they’re up to seven bank robbers. We got on the phone and started talking them out. 

Human interaction is just decision making. It’s the context that changes but decision making is the same, whether it’s business or a hostage situation. You’re talking about a bank robbery with hostages in Brooklyn and the business plan that they started the day with went awry. 

There’s an American general that once said that no plan ever survives the first encounter with the battlefield. It sounds like people’s business operations. 

However, we got into the middle of it. In hindsight, the bank robber on the inside was the classic CEO negotiator. He was trying to avoid being backed into a corner. He was hiding the amount of influence that he had and he wanted to maximize his revenue for the day. 

It ended up that we put a hostage negotiation team together between the FBI and the NYPD. The NYPD had their negotiators out there. We trained together and we understood the language. We didn’t call it emotional intelligence back then but that’s what it is. We spoke the same emotional intelligence. 

They put a PD negotiator on first and I was his coach, the commander of the PD, Hugh McGowan, a brilliant man. He ran the operation. We started to negotiate with the bank robber on the other side. The first guy that got on the phone, he was really evasive. 

He was brilliant with the way that he tried to make himself look powerless, when in fact, he was one that had all the decision making on the other side. However, he kept saying, “There are other guys in here with me. They’re more dangerous than I am. I don’t know what they’re going to do.” 

He realized that we had snipers, and if we thought he was a threat, maybe one of our snipers would shoot him. Then, he kept talking about how dangerous everybody else was, so he wouldn’t be a threat. 

The other thing that was brilliant was he did everything he could do to manage the threats. [He would say things like,] “I got to put you on hold for a minute. The girls want something to eat. I have to put you on hold for a minute. The girls have to go to the bathroom.” 

He kept acting like he had taken great care of the hostages, when in fact they’ve been very abusive to them up to that point in time.

Preston Pysh  4:56  

Chris, one of the ideas that you talk about in the book is this idea of mirroring. Explain to our audience a little bit more about this.

Chris Voss  5:04  

It’s just repeating the last one to three words roughly of what the person has just said, obviously, you can’t repeat less than one word. You might repeat as many as five, kind of word for word. It’s not paraphrasing. You get more than five, you’re paraphrasing. 

It triggers an automatic response in the other side, particularly someone who’s being really guarded or really focused on what they’re saying. Now the bank robber, and in this case, he was extremely guarded and cautious about every word that came out of his mouth. 

We got a little bit farther into this scenario now that the PD who negotiated had been taken off. I replaced him and I was on the phone with this guy. It was time to confront them, and you can confront them as long as you’re not aggressive about it. You have to be gentle and you have to use a good tone of voice. It’s what I would refer to as the late night FM DJ. It’s a soothing, calming voice.

I’m using his tone of voice on this guy. I can be very assertive if I use that voice. I said, “There’s a van that we have out here.” Now we had his van and we knew it was his van. We just needed him to admit. 

I said, “We got a van out here and we’ve identified all of the drivers to all the vehicles except this one.” He got nervous and he said, “Well, we don’t have a van.” 

I mirrored him. I said, “You don’t have a van” He said, “We only have one van.” “You only have one van.”  He said, “Yeah, well, you chased my driver away.”

Now, I’ve had no idea what this guy’s talking about this point. I’m actually confused. However, since I know how to mirror, I’m mirroring him and he continues to talk. He just admitted they got a van outside. Then, he admitted that they had a getaway driver that had gotten away. He just roped into one more of his accomplices without even knowing it. 

The mirroring kept him talking, and he was probably the most control-oriented negotiator I ever ran across. It was just brilliant. We had not only kept him talking, but we got him to say things that he didn’t plan on saying.

Stig Brodersen  7:17  

If you’re not familiar with the concept, it almost sounds like a Jedi mind trick kind of thing. People might think, “Oh, God. I could so easily tell if people are doing it to me.” At least I can say from my own experience, I’ve tried using it and have it done to me. It’s just different. You don’t notice it. 

I don’t know if you do, Chris. I mean, you’re an expert, but it’s so subtle that it’s almost unbelievable how effective it can be.

Chris Voss  7:43  

I think I have a high EQ. I don’t have a particularly high IQ. The high IQ and EQ people love mirrors. When I run across somebody that says, “Man, I use it all the time. I love mirrors. That may be the only thing I do.” 

Almost every single time, it’s somebody who’s brilliantly smart in all areas. I am not. I am not a high IQ guy. Consistently, I don’t know if it’s the simplicity of it and the simultaneous elegance that appealed to the high IQ people but if you’re immediately attracted to mirrors, I’d be willing to bet that you tested probably really high on IQ.

Stig Brodersen  8:22  

You just mentioned that before, Chris, that you could use the late night DJ voice. Actually you introduce three different types of voices in negotiation. That might sound a little surprising to our listeners, because most of us are probably just thinking about having one voice. Perhaps they didn’t even think about in the first place that you can use different types of voices. 

Could you lay out for us the three different types we can use and in which situation they are applicable? For instance, in this example, in this story here.

Chris Voss  8:52  

The three types, first of all, the late night FM DJ voice is really the voice of a really analytical person. It’s a person who likes to think things through at a measured pace. Consequently, that’s the voice that they use. 

Now, the great thing about that voice is, it also causes the other person to be more thoughtful and to slow and calm down. There’s neuroscience that backs that up. That’s to do with mirror neurons in our brains and neuro chemicals. 

It’s the main reason that hostage negotiators just don’t get in arguments and business people do all the time. Hostage negotiators don’t because a smooth and calming voice actually has an effect on the other person’s brain chemistry. 

Then there’s the assertive voice, the direct and honest voice. “This is what I want and this is when I want it. You want to make a deal? This is what I need.” 

Again, it’s a neuroscience reaction. It makes people combative. That’s not good for you in negotiations. 

The third voice is the commentators’ voice. Somebody that smiles when you talk to them. You can feel the smile when they talk. Again, there’s a neurochemical reaction. And you’re 31% smarter and a positive frame of mind. 

Even if you make yourself smile, you actually make yourself smarter and consequently, the other person feels it. They get in a positive frame of mind. You get great collaborative negotiations when you smile. There’s actually a chemical response behind it. There’s data that backs up the truth.

Preston Pysh  10:36  

Chris, I really like how you’re contrarian on this next topic that we’re going to cover. In your book, you talk about “Getting to Yes,” which is a very popular negotiation book that I’m sure most people are familiar with but you talk about “getting to know.” Talk to us about this idea.

Chris Voss  10:57  

The problem with “yes” is there is always a catch with “yes.” There’s always a hidden trap. There’s always a catch. People still teach the “yes momentum” or momentum selling. They refer to every “yes” as a micro agreement or a tie down. Well, that’s a catch. That’s a trap. 

If you get somebody into three micro agreements, then they have to make the big agreement. You start to tie them down and you take away their autonomy. Now, people feel this and everybody in the world has had this done to them multiple times. That instantly, their intuition is getting triggered, their warning bells, their internal alarms.

As soon as somebody starts to try to get them to say yes, they start thinking, “What’s the trap here? What’s the tie down? How is this going to back me into a corner?”

I’ve had people say to me, “If I say yes, what does it commit me to? What have I let myself in for?”

Even if you’re not trying to tie people down, as soon as you begin to model a behavior that the tricksters are modeling, they think you’re a trickster. I mean, I think it’s an African saying, “Once bitten by a snake, you’re afraid of ropes.”

People overreact to fears and that’s what this “Getting to Yes” problem is. Every yes feels like a trick or a trap. There’s an automatic aversion to the word. 

Now, the insane thing is, people are taught that when they say no, that they’ve just protected themselves from the trap. It’s as stupid as changing the question from do you have a few minutes to talk to is now a bad time to talk? 

Instead of saying do you agree, we teach people to say, “Do you disagree?” Instead of saying, “Does this look like something that would work for you?” We teach people to say, “Is this a ridiculous idea?” 

It is just switching from yes to no to start with. As a massive change in the way people react, they don’t feel trapped, they’ve been conditioned that saying no protects them. They relaxed and they calmed down. They’re more agreeable having said no.

Stig Brodersen  13:11  

You also mentioned there that if you want the other party to commit, we need for them to commit not one, but three times. Could you please explain and perhaps provide an example of those three steps before you potentially close a business deal?

Chris Voss  13:25  

Change your thinking and don’t look at “yes” agreement. You’re looking for agreement. You’re not looking for yes. Really, when people really agree and they feel like they agree, they don’t say yes. They say, “That’s right.” 

I might say, “It sounds like if we could work out all the details on this, it seems like you see some value here.” You’re going to say, “That’s right.” And I might say, “So, that’s right?” Then, you say, “Yeah. If all the details are worked out and you meet our objectives, then this would work for us.”

So, now you paraphrase it. Basically the sequences you label what they’ve just said, it sounds like that if all the details are worked out, you guys can implement this process. A label starts with the terms and the words it sounds like. That’s labeling. It’s a verbal observation.

You’re not really asking a question. You’re making a verbal observation. Then whatever they respond with your mirror, we talked about the mirror before. They may just say, “That’s right.” You mirror that back, “That’s right.” 

You put an upward inflection on it and they’re going to give you a longer answer, the longer answers you paraphrase. Basically, you’ve got an agreement in three different forms, based on the use of three different skills. However, it’s all around the same concept. It’s expanding. It’s just getting so far beyond the limitations of “yes.” 

You’re getting into actual collaboration. The more words you get out of the other person’s mouth, the more vested they are in the deal and the more they’re going to feel like they want to do it. Implementation is critical.

Stig Brodersen  15:11  

In the previous question, we talked about how counterintuitive it is that we need to get to know in a negotiation. What perhaps is even more counterintuitive is the so-called accusation audit. Perhaps, that’s also why it’s even more effective. What is an accusation audit?

Chris Voss  15:29  

The accusation audit is taking the audit and inventory of all the accusations they might make against you. Not that you would make it for them but they would make it against you. All the insane crazy things and unfair ridiculous things that they might think.

If you’re in sales, you know that people don’t trust salespeople. That’s an accusation that they’re making before you’ve even spoken to them. It’s not fair. It’s unfair. They don’t even know you. How could that be fair? It doesn’t matter. 

What are the same insane, ridiculous accusations that they might potentially make? Now, just list them out. If they’ve agreed to a meeting at some point in time, they’re going to think the meeting is a waste of time. You start by saying, “You’re probably wondering if this meeting is a waste of time.” You don’t deny it, you call it out. 

The massive difference is never deny a negative, just call it out. We know from neuroscience, actually, this is why people make decisions. They have to get past the negatives. They don’t ignore them. They got to deactivate it. They got to reconcile them. To some degree, they have to put them to rest. The most effective way to reconcile negative thoughts is to simply state them.

In the United States, we’ve got a phrase, “The elephant in the room.” What’s the problem? The accusation is the elephant in the room. You don’t get rid of the elephant in the room by either ignoring it or denying that it’s there. Actually, the best way to get rid of the elephant in the room is to say, “Hey, you’re probably thinking there’s an elephant.” 

You point it out, you don’t deny it, and then you don’t follow it up with, “But here’s why it’s not there.” You don’t explain it away. You just call it out. It’s the most effective way to deactivate negatives on Earth. There’s no more effective way to deactivate negatives than to simply call it out and label it. Then, to let that label sink in and defuse the problem.

Stig Brodersen  17:25  

You have a very simple technique in terms of identifying whether or not you’ve been successful with the accusation audit. What is it that you’re looking for? What is it that you want to hear from the counterpart?

Chris Voss  17:37  

Well, the beautiful thing is when they stop, and they say, “No. You’re being too hard on yourself.”

Now, the interim steps, they’re going to respond one of three ways to your listing of the negatives. Again, you’re not explaining and you’re not denying. You’re not following on any other than a list. They either are going to give you silence. They’re going to say, “That’s right.” Or they’re going to say, “No, you’re being too hard on yourself.” 

Let’s get to it. Now, silence means you’re on the right track, and you haven’t gone far enough. 

“That’s right” means of course, you nailed it perfectly. You deactivated everything. They’re now ready to listen. You’re trying to put them in a frame of mind where they will listen to you.

If they say, “No, you’ve been too hard on yourself, that’s too much.” They’ve actually not only have they said, “That’s right,” but they’ve stepped over to your side of the table. They’ve embraced you. They’re helping you and they’re on your side. You’re now in complete collaboration. 

Those are the only three responses to the accusations on. If I was in a salary negotiation, I’d say, “Look, you’re going to think I’m greedy, self-centered, and not a team player. You’re probably going to think I’m not concerned about the future of the company. You’re probably going to be shocked at how high my salary demands are.” 

In all intents and purposes, every deal that my company negotiates, when someone has asked us our price, our response is “Ridiculously high, more than you’ve ever paid and more than you plan on paying.” Then, we go completely silent. 

Now, we don’t haggle. I say haggling is for hags. We don’t bargain. We don’t do that anymore. We have a price, and we over deliver, always. We’re the most expensive, and we get paid. We just raised our price because what we also found out was if after I’ve said that my price is ridiculously high, the person on the other end of the conversation will stop and imagine a number higher than I had in mind. So then, when I give my number, my number is actually a relief. 

We had people say to our Director of Sales so many times, “Wow, I thought it was going to be much higher than that.” She started asking, “Okay, well. Now that you know, what did you imagine?” 

Then, they started quoting these ridiculously high prices, and we thought, “Wow, they were prepared to pay that price.” So, we just raised our prices. 

If you have a lousy product, you can do this too but you’re going to destroy your business because first of all the price you had before, it wasn’t worth what you were charging. 

However, if you believe in over delivering the way that we do, then you’re entitled to every penny, every dollar, every euro, whatever your means of exchange is, you’re entitled to all of it. You should never cut your price. If you over deliver, you should never cut your price.

Stig Brodersen  20:27  

It’s elegant the way that you try to prime the other person. You just let them think there for a second. One of the favorite stories that I got from your book is the way that you can always get a late check out in a hotel room. 

I know it seems like I’m digressing here, but it’s just such a neat story. I have to ask you to tell that and then ask for people to test it out themselves. I absolutely love this. Please go ahead, Chris.

Chris Voss  20:54  

Yeah, it is so ridiculous, though because I’m in a hotel the other day and I didn’t get a late check out. I called them from my room. I said, “Look, I need a late check out.” They said,  “We can’t give you one. We could give you one for $75 charge.”

I thought, “Do I really have to do this?” Because I didn’t do it right because I know that they’re going to give it to me. I got lazy so I said, “Okay, thank you very much.” I hung up the phone and I walked down to the front desk. I walked right up to the person I have just been on the phone with who just denied me a late checkout. 

I looked at this young lady and I said, “I am getting ready to ruin your entire day.” Her shoulders went down. She slouched and she looked down. She took a deep breath and she said, “Okay, what is it?” I said, “I need a late check out.”

She said, “Oh! Okay, sure. *inaudible* four o’clock here. You can have it right here.”

This is a person on the phone when I didn’t do it right. The priming that you talked about, we referred to this also as an emotional anchor, but an emotional anchor in advance. She just told me, “No.” 

I just saved my time in the very beginning if I have just done it right from the beginning, because I had to walk down to the front desk and I kind of walked back. I got lazy, and I didn’t want to take the other person’s emotions into account again. I got very self-centered. I was just focused on what I wanted, and it took longer. As soon as I took the other person’s emotions into account, I saved myself tons of time.

Stig Brodersen  22:24  

So these different techniques that you talked about, Chris, how important is it that you sit in front of that person? How much can you do over the phone?

Chris Voss  22:34  

Well, with practice, you can handle it all over the phone. I mean, there’s a massive amount of information that comes from somebody’s tone of voice, when you practice listening for it. 

It’s only practice. A hostage negotiator does everything. We never look at anybody. What does that mean? We just got on with practice. I get used to hearing everything and with practice, you can. I mean, it’s all there. 

The brain is capable of processing the data with practice. Your gut instincts, your subconscious processes, a massive amount of information. It’s a mind boggling amount of information which is why as soon as people start listening to their intuition, their intuition actually gets very good. It’s just our brain interpreting data, all the data is there. You just got to give your brain the chance to do it.

Stig Brodersen  23:26  

Interesting. Chris, because this is an investing podcast, we covered prospect theory and loss aversion multiple times, and how to use those concepts when we want to invest in the stock market. How can we use these concepts in business and negotiations?

Chris Voss  23:44  

Loss aversion. You lost things twice as much as an equivalent gain and reality is loss is the overriding factor in human decision making. How do you factor that into business?

In a business negotiation, the real enemy is the status quo, getting someone to change what they’re doing. They’re more likely to change to avoid a loss. How do you get them to think about the loss? 

You can’t say, “Look, you’re going to lose all this money, if you don’t do this.” What you have to do is a little bit of what we talked about before. You got to use a good how question or what question. What happens if you do nothing? What are the consequences of inaction? 

If the rate of return that your offering is 15% or let’s say it’s 7%, whatever your percentages. You can say, “Hey, look! Make this decision and your rate of return will be 7%.” Or you can say, “Stay where you are, do nothing, and it will cost you 7% every day, while you’re sleeping. It’s going to cost you 7%.” 

That’s making a decision to avoid a loss instead of making a decision to accomplish a gain. Do this and gain 7%. You say, “Do nothing and lose 7%.” 

The second one has a higher compliance rate. Now, does it work every time? Nothing works every time. You have to go with what has the highest compliance rate and loss aversion has the highest compliance rate.

Preston Pysh  25:15  

Chris, one of the really fascinating parts that you talk about in the book is using odd or numbers that seem that they’ve been calculated, if you will. Talk to us about why this works so well.

Chris Voss  25:31  

They feel more solid to the other side. They feel more thought through. An even number feels like a soft number, like an estimate and a temporary placeholder. The pricing around the world is triggered to that. You can’t buy anything for a dollar or for a euro, whatever your unit of exchange is. You can’t buy it anywhere. It’s always an odd number. It works everywhere.

Every society on earth uses odd numberings in their pricing, because it feels better to the other side. Then you start to kick it up to the next level. I’ve got a colleague that’s selling some training for $55 a person, because he’s gotten out of the $19.99, or the $49. He’s gotten away from numbers that ended with nine. He likes 55, and it just feels like something about that makes it work for the pricing that he’s doing.

This is in pricing globally. Just take advantage of it in your negotiations. We always coach people to make counter-offers in odd numbers. Certainly your last offers have to be in an odd number. 

Stig Brodersen  26:48  

That is a great point because it seems like you can’t do anything more at giving everything away. You know, at $.53. I absolutely love those examples.  I think that’s to our audience, they’re listening to you. I heard you saying, “Well, in our company, we don’t really haggle.” 

They might look at you and say, “Well, I’m not Chris. I don’t have any hostage negotiation skills.” 

Perhaps they think they have a very different background and they’re used to negotiations where at the end of the day, it comes down to which slice of the pie you’re getting and the counterparty is getting. They might feel that from time to time, they’re being forced into some real bare knuckle bargaining. 

One of the things I really picked out from your book was at the FBI, you learned this *inaudible* called the Ackerman Mode for those types of situations. Could you please explain to us how to use that system?

Chris Voss  27:29  

Ackerman Mode is the most effective bargaining system out there, bar none. When you get into a bargain, it’s based on a dynamic of three, again. You see the dynamic a three in human nature prop up over and over again. It’s based on, you’re going to plan out for three rounds of bargain. You come up with a target price and you’re going to allow yourself to be moved into that target price in three increments. 

Your increments have to be decreasing increments, every move that you make has to be smaller than one before. The other side will feel the increments getting smaller. They will feel victory every step of the way. 

But, they will feel each victory was harder and harder won, so that if you get to your number, they felt like they got everything they could. That number then becomes a tremendous victory for them, which if they don’t take it, they’ve lost it. 

Again, this is loss aversion. People don’t want to lose victories. You want to make them feel like they won because they’re more likely to stick to it. 

The principal concepts are three rounds of decreasing increments, decreasing incremental changes. Critical that each change is in a decreasing increment and use of odd numbers. 

Then in between those three, the other side has to counter. Otherwise, you’re bargaining against yourself, which is what everyone in the world is trying to get you to bargain against yourself, which you cannot do, because you’re taking yourself hostage and you lose.

The other side has a counteroffer. Then, you have to apply lots of paraphrasing, summarizing, tactical empathy in each round, which also again, makes the other side feel like they’ve worked really hard for the outcome. Plus, there’s a very real chance that they’ll settle on your number sooner. You might not even get to your third number. 

A lot of people come to the table with Ackerman, they’re going to come in with an offer that’s roughly 65% of where they want to be. Then with enough tactical empathy, they end up right at that number. I mean, they’re shocked. I mean, shocked. 

No shortage of people using Ackerman have ended up at their first number because they put so much tactical empathy in with that number that they never had to come off.

Stig Brodersen  30:03  

Our listeners might be a bit overwhelmed right now when they listen to this interview and they might say you’re right and they need to do these 12 different things next time in a meeting. They’re too confused. So it’s kind of like analysis paralysis.

If we can just give them that one thing where this is effective, this is simple. Try it out. If you just have to mention one thing, what would you recommend people start with, sort of to apply these techniques in their daily lives?

Chris Voss  30:33  

I mentioned one thing and I’m going to give some people some guidance on how to work it all into their repertoire because you can if you break it down into small things, and that’s why I love it when you want to start with one small thing. 

The other thing that’s great about this, too, is as soon as you begin to improve at all, the biggest jumps of improvement are at the beginning like with any skill. It’s just to get a little bit better and you’re going to see a rate of return that’s huge. 

The first thing to do is really just let the other side go first. Try to paraphrase whatever they’ve said. Don’t argue, don’t counteroffer, don’t make your value proposition. I mean, they got a pitch they want to make. Let them pitch it. Make an effort to hear them out. If you’ve heard them out really well, they will say, “That’s right.” 

A bunch of your deals will make themselves as soon as your counterpart says “That’s right.” Now, how many of them will it make? It doesn’t matter because now those are made, and you don’t have to put in more work on it. You just put a whole bunch of time back into your life. 

Make an effort to just summarize and paraphrase what the other side has said. Get “that’s right” out of somebody before you do anything else. Whatever percentage of deals will make themselves on the spot. Now you could put a little more effort into the other deals. Just get a “that’s right” out of somebody.

Preston Pysh  31:58  

Chris, instead of saying do this one thing, what would you say is a common mistake that you see a lot of people make?

Chris Voss  32:09  

Being a “yes” addict? Give a few minutes to talk. Did what I said make sense? Have I got that right? I mean, there’s so many ways that people are addicted to “Yes.” The problem is, again, just because you like hearing it, you have to remember the other side feels like you are trying to trick them and trap them down. 

Every time you hear the delightful “yes,” which makes you feel like the angels are singing, the other side feels like they’re being trapped. They’re being tricked. They’re backing themselves into a corner. What’s good for you is horrible for them, this whole yes thing? Just stop trying to get people to say “yes.” You’ll change your conversation. 

Plus, you’ll find that if you’re no longer looking for “yes,” you’re actually listening. You’re paying attention to what they’re actually saying. You’re actually having a conversation as soon as you get out of “yes.” All your interactions will improve.

Stig Brodersen  33:05  

Chris, this has been absolutely amazing having a chance to speak with you. I’m sure the audience would like to learn more. First of all, where can they learn more about you, but also your company, Black Swan Group?

Chris Voss  33:17  

The best place is just go to the website, BlackSwanLtd.com. The website is a gateway to everything. We have a lot of free content like newsletters free. You can go to the website and sign up. We’ve got PDF guides. We got a negotiation preparation guide and other free tools that can get you a long way. 

You combine it with the book, you’re going to put yourself in a position to make a big difference in your life, starting this week. You can begin to make small little improvements every day. In a very short period of time, you’re going to find that negotiation is fun and you’re very effective. You’ve got more time. 

Stig Brodersen  34:12  

Before we just let you go, one last thing I want to ask you, Chris, is that some people might be thinking, why is it called Black Swan group? There’s a really interesting story to that name. So, I don’t know if I could briefly ask you to mention why it is called Black Swan group? 

Chris Voss  34:27  

Yeah, the impact of the highly improbable and the little things that you wouldn’t imagine make all the difference in the world. Originally, the Black Swan was in 16th century Europe, where there were only white swans and people thought there’s no such thing as a black swan. A black swan would be a game changing and a world changing event. 

Then they discovered Black Swans in Australia and people were shocked that there are black swans. It’s phenomenal. This is crazy. 

This metaphor has been applied to modern day times, to the little things that make all the difference. In negotiations, these tiny little steps make all the difference in the outcome. You uncover things that will change everything. Find a black swan in a negotiation and come up with better deals than you ever imagined you could get. 

Stig Brodersen  35:14  

Chris, thank you so much for taking the time out of your busy schedule to be speaking with us here on The Investor’s Podcast.

Chris Voss  35:20  

It’s an absolute pleasure. Thank you for having me on.

Stig Brodersen  35:23  

All right, as we’re letting Chris go, we’re now ready to answer a question from the audience. This question comes from Mark.

Mark  35:31  

Preston and Stig, I’m Mark calling from the UK. I just wanted to say first of all, thank you for a fantastic informative show. I’ve been listening now for the last six months or so. I’ve really picked up a lot of tips and really appreciate it. 

I wonder if you could possibly help me as I’m starting to put together a little bit of a portfolio and I came across something in a book that I’m reading called “Naked Trader,” just in regards to using shorts as a bouncer for my portfolio. 

Now, at present, I run indexes and like the FTSE 100, and so on, but I’ve seen there’s something called the SUK2, which shorts twice the value of the FTSE 100. I’m wondering is it possible to create an All Weather Portfolio between special types of ETF trading firms, but in opposite correlations of each other? I’d love to hear your thoughts on it. Thank you very much.

Stig Brodersen  36:30  

Previously here on the show we talked about the All Weather Portfolio but just quickly to sum it up for everyone to follow. It’s an approach that Ray Dalio has made famous. You’re basically taking a combination of different asset classes, stocks, bonds, commodities and gold to make sure that your portfolio can perform in all seasons of the financial markets. 

To your question whether or not you can use shorts in an All Weather type of portfolio? The answer is yes, in theory, but it’s likely not as effective in reality. You could perhaps even consider diversifying out of the FTSE for that reason alone. For instance, into global equities. 

You’re based in the UK, so that’s why you refer to the FTSE. For our American listeners, the argument is basically the same if they would do it to the dollar, the S&P 500. 

Shorting is generally quite expensive. Limiting exposure to equities, in general will be a cost saver, and then invest into an asset class where the yield and shorting does not have yield. That is inversely correlated instead. That way you can have your cake and eat it too. 

If you want to have a more neutral exposure to the stock market, there’s also a different option, even though it’s outside the scope of the All Weather Portfolio. If you think that one stock will relatively outperform another, but you don’t want to count on the tailwind of the stock market to help you do so, you can go long individual stocks in say, for instance, Bank of America and then short Wells Fargo. That way, even if the stock market tanks, you can make a profit if you are right about the relative performance of the two stocks. 

If you want, you can even do the same thing with two different ETFs which sounds like, Mark, is probably more what you’re getting at that you mainly invested in indexes. 

Generally, I would say that anything that involves shorting, though, is a bit more sophisticated. For the vast majority of investors, I would much rather recommend that you diversify into different assets and asset classes rather than into shorting, if you want to lower your volatility.

Preston Pysh  38:30  

Yeah, so for me on this, I am very worried about doing anything short these days. The main reason why is because you have central banks and governments around the world that are demonstrating a desire to print and to print that no holds bar. I mean, it’s very different from the cultural setting that we had during the Great Depression, which let the businesses fail. If you’ve taken on too much leverage, you should fail. 

I just think culturally, everyone’s looking at the government and saying, “Why aren’t you printing more?” That’s pretty much seen collectively across both parties and on Wall Street. Pretty much anywhere you go, that’s pretty much the mindset. 

My opinion is that we might have these deflationary liquidity crunches that are going to manifest themselves but I kind of suspect that governments around the world are going to step in and print at unseen levels. 

When you think about how a short performs, it’s in nominal terms. If they’re nominally just adding more and more field units into the system, I’d be very concerned, having a long term short position in pretty much anything. 

I don’t know that I can really help you with a response because I’m really kind of just, it’s hard for me to see past what I just described. Hopefully, between my response and Stig’s response there, Mark, we got you something that was of some kind of value. 

For asking such an awesome question, which this is an awesome question… I think it’s something very important for people to be thinking about, especially during these times, we’re going to give you free access to our TIP Finance tool, which helps you find just fantastic companies that are pumping out some good free cash flows and that are trading on the market for a good price. 

Not only can you do that, but then you can look at how correlated those picks are to other picks that you have in your portfolio and that includes ETFs and stocks. It also has a momentum tool on all sorts of things that help you and assist you with your financial journey. We are really excited to be able to give that to you. 

For anybody else out there, if you want to get a question played on our show, go to asktheinvestors.com and if your question gets played on the show, you get a free subscription to our TIP Finance tool.

Stig Brodersen  41:11  

Alright guys, Preston and I really hope you enjoyed this episode of The Investor’s Podcast. We will see each other again next week.

Outro  41:18  

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